Co-ops & Investor-owned Corporations Compared
The governance structure of cooperatives is
significantly more open, democratic, transparent and inclusive than
that of Investor-owned corporations. A recent, national survey indicates
that the public views businesses with the co-op governance characteristics
listed below as more trustworthy than businesses that lack these
attributes.
Ownership
Cooperatives: Owned by members—the
people who buy the goods or use the services of the cooperative.
Investor-owned Corporations:
Owned by outside shareholders who may or may not use the goods
and services of the business.
Control
Cooperatives: Wholly democratically
controlled by the members on a one-member, one-vote basis (i.e.,
all members have an equal voice in the business regardless of
their equity share).
Investor-owned Corporations:
Controlled by shareholders according to their investment share.
Shareholders must meet a threshold of ownership to have any meaningful
control over the company.
Board Membership
Cooperatives: Board is made
up of the co-op members who are elected by the members. Most,
if not all, directors are independent—they are not selected
by the CEO and typically do not work for or have any business
relationship with the co-op, other than their patronage of it.
Management typically does not hold board seats.
Investor-owned Corporations:
Board is made up of a combination of independent directors, management
and other directors with financial or business ties to the organization.
CEOs often serve as board chair.
Board Compensation
Cooperatives: Cost reimbursement
for board meetings. Board members typically serve on an uncompensated,
volunteer basis.
Investor-owned Corporations: Significant financial
compensation provided.
Board Nominations
Cooperatives: Candidates
are nominated by membership either directly (including self-nomination),
or by a nominating committee made up of the members. Nominating
committees may be made up of board members or include other co-op
members. They typically issue a call for nominations to the membership
prior to each election. Co-ops circulate a single election ballot
including all nominated candidates.
Co-op bylaws generally allow any member to
nominate a director-candidate. Where a petition is required to
place a candidate’s name on the slate, the threshold for
signatures is generally low (e.g. 100 signatures or 1% of membership).
Investor-owned Corporations:
Candidates nominated by the board of directors and management,
often by a nominating committee. Management maintains careful
control over board candidates. Board proxy materials include only
board nominees.
Shareholders have only limited ability to nominate their own director
candidates and must do so on a separate proxy statement that they
circulate and tabulate at their own expense, ranging in cost from
$100,000 to $1 million. (AFSME, 2003) Shareholders must also execute
that separate proxy card to vote for other candidates. Shareholders
may recommend nominees to the nominating committee, but companies
rarely nominate such candidates. Shareholders may also nominate
directors in person at the annual meeting, but few shareholders
attend and such nominees rarely receive sufficient support.
Board Elections
Cooperatives: Board is elected
by the members on a one-member, one vote basis. Contested elections
are the norm, not the exception. Members vote in-person at the
annual meeting, by mail, or electronically, or by a combination
of these methods.
Investor-owned Corporations:
Board elections are better characterized as shareholder "ratification"
of the uncontested, management/board-selected slate offered on
the proxy statement. Because the board typically nominates only
enough candidates, often incumbents, to fill open seats, whether
or not a shareholder submits a proxy matters little. Shareholders
submit proxy in advance or must attend the annual meeting to vote
in person.
Accountability
Cooperatives: Board members
are directly accountable to members through these nomination and
election procedures. Board members can be, and often are, voted
out in contested elections.
Investor-owned Corporations:
Election and nomination procedures afford little meaningful oversight
to shareholders. It is difficult and costly for shareholders to
remove board members.
Dividends
Cooperatives: Any surplus
revenues (profits) earned by the co-op are reinvested in the business
and/or returned to members based on how much business they conducted
with the co-op that year—their patronage—or through
lower prices or fees. Many co-ops are obligated to return a portion
of their "surplus revenues"—if there are any—to
members each year.
Investor-owned Corporations:
Profits returned to shareholders based on their ownership share.
Corporations are generally not obligated to pay out dividends.
Motivation
Cooperatives: Maximize member-service
Investor-owned Corporations:
Maximize shareholder returns.
Structure
Cooperatives: Co-ops operate
on a not-for-profit basis. Depending on the type, co-ops can organize
under a variety of structures—as co-ops, as non-profits,
and as regular corporations. All co-ops operate according to co-op
principles.
Investor-owned Corporations:
Generally organized as C corporations.
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